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Comparative study of the personal income tax return process In Belgium and 33 other countries 3rd edition - May 2015

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Page 1: Comparative study of the personal income tax …individual income tax returns through an electronic filing system however it requires a specific certificate which is rather expensive

Comparative study of the personal income tax return process In Belgium and 33 other countries

3rd edition - May 2015

Page 2: Comparative study of the personal income tax …individual income tax returns through an electronic filing system however it requires a specific certificate which is rather expensive

Content

2

Introduction 3

White dominates 4

The electronic tax return advances further 5

Big brother is watching you 6

Data fields to complete. China, Norway and Portugal excel 8

Completing a tax return remains burdensome 9

Are married people aware of each other’s tax affairs 11

Multiple tax returns? South Korea stands out 12

Taxation of moveable income – who taxes at source? 13

Your personal situation is decisive for tax deductions 14

Actual or lump-sum business expense deductions? 15

Is late filing sanctioned? 16

Tax refund or tax due? 17

Free loan for tax authorities or reward for taxpayer? 19

Worldwide fiscal transparency is becoming the standard 20

Random tax audit? 21

General conclusion 22

Contact 24

Page 3: Comparative study of the personal income tax …individual income tax returns through an electronic filing system however it requires a specific certificate which is rather expensive

Comparative study of the personal income tax return process In Belgium and other countries 3

Introduction

The ‘Comparative study of the personal income tax return process’ was conducted for the first time by Deloitte in Belgium in April 2012 and for a second time in May 2013. Each time, we investigated how the declaration process for personal income taxes takes place in Belgium and whether there are similarities or rather significant differences with other countries. Therefore, various aspects of the tax return process were examined: How smoothly does it run and how are advanced technologies embedded in this process? We also looked at how difficult it is to fill out a personal income tax return and whether it makes any difference if someone is single versus married or legally cohabiting.

The survey questionnaire, consisting of around 20 closed questions, was answered by our fellow tax consultants in 34 countries.

This survey summarizes the main and remarkable trends and differences concerning the personal income tax return process in an international context.

Australia AUAustria ATBelgium BEBrazil BRCanada CAChina CNCzech Republic CZDenmark DKFinland FIFrance FRGermany DEGreece GRIndia INIreland IEItaly ITJapan JPLuxembourg LUMalta MTMexico MXNorway NOPoland PLPortugal PTRussia RUSingapore SGSlovakia SKSouth Africa ZASouth Korea KRSpain ESSweden SESwitzerland* CHThe Netherlands NLTurkey TRUnited Kingdom GBUnited States of America. US

Countries:

* differences possible in the various cantons

Page 4: Comparative study of the personal income tax …individual income tax returns through an electronic filing system however it requires a specific certificate which is rather expensive

4

White dominates

Approximately one third of the countries surveyed (Australia, Austria, Canada, Finland, Luxembourg, Malta, Norway, Russia, Singapore, Spain and Switzerland) prefer a neutral white envelope to send the annual income tax returns to their citizens. Belgian, British and Irish tax payers typically see a recognizable brown envelope arriving in their mailboxes. In France and the Netherlands, governments send out paper tax return forms in blue envelopes, while Sweden still provides a plastic envelope and Denmark opts for a bicolored envelope in white and yellow. Finally Germany sends out their paper tax returns in grey envelopes.

In line with previous years, less than half of the countries surveyed (44%), no longer automatically sends out paper tax return forms. Consequently, 56% still sends out a paper tax return form via ordinary mail to all taxpayers or at least to those requesting it.

AT, AU, CA,CH, ES, FI,LU, MT, NO,RU, SG

FR, NL

BE, GB, IE

DK

Page 5: Comparative study of the personal income tax …individual income tax returns through an electronic filing system however it requires a specific certificate which is rather expensive

Comparative study of the personal income tax return process In Belgium and other countries 5

Similar to the previous editions of this survey, many countries are on the rise in terms of automation and computerization of the personal income tax return process.

What level of automation and computerization of the individual income tax return process have several countries achieved?Outlier Luxembourg does provide the possibility to file individual income tax returns through an electronic filing system however it requires a specific certificate which is rather expensive for the taxpayer. Consequently, paper filing is still common practice in Luxembourg.

In line with previous years, in a minority of countries taxpayers are obliged to comply with personal income tax formalities through an electronic system. Next to Austria, Brazil, Italy, Mexico, the Netherlands and the USA, this is now also the case for Greece and India and within a period of five years, it can be expected that this will also apply in France. The vast majority (almost 74%) allows taxpayers to choose whether they want to file their personal income tax return on paper or through an electronic system.

We conclude that electronic filing for individual income tax purposes is still rising strongly .

The electronic tax return advances further

0%

20%

40%

60%

80%

100%

73,53%

2,94%

17,65%

5,88%

AT, GR, IN, IT, NL, US

AU, BE, CA, CH, CN, CZ, DE, DK, ES, FI, FR, GB, IE, JP, KR, MT, NO, PL, PT, SE, SG, SK, TR, RU, ZA

BR, MX

BELGIUM

Done

ONLY paper version (1/34)

Option: electronic or paper version

(25/34)

ONLY electronic, no exceptions possible

(2/34)

ONLY electronic, some exceptions possible

(6/34)

Electronic tax return or paper version?

LU(unless in case of certificate)

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6

Are taxpayers getting any help from the local tax authorities to accurately complete the tax return? Or do they totally rely on themselves?

What is the level of automation of the tax return process in the countries surveyed?This year, survey results reveal that the inquired countries that have prepopulated personal income tax return forms, have increased again (67,65%). Two years ago, the tax return form was (partly) prepopulated in only one third of the countries surveyed (36,36%). In 2013 this was only 52,94%.

Big brother is watching you

38,24%

29,41%32,35%

2,94%

0%

10%

20%

30%

40%

50%

60%

70%

No (11/34)

Yes, both the electronic as the paper version

(10/34)

Yes, only the electronic version

(13/34)

Is the tax return (partially) prepopulated by the local tax authorities ?

BELGIUM

Done

AT, AU, BE, BR, GB, GR, IT, MX, PL, PT, SG, TR, ZA

CH, DK, ES, FI, FR, JP, MT, NL, NO, SE

CA, CN, CZ, DE, IE, IN, KR, LU, RU, SK, US

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Comparative study of the personal income tax return process In Belgium and other countries 7

Spain gets the best score in this respect as the Spanish tax authorities complete the entire tax return in advance (both the paper and the electronic version) albeit upon the request of the taxpayer.

Denmark, The Netherlands and Sweden also perform well in this respect as their tax return forms are completely filled out upfront with the exception of details regarding foreign bank accounts and movable property in Denmark and the Netherlands and with the exception of details regarding foreign bank accounts and potential tax deductions in Sweden. The French tax returns (both, paper and electronic version) are always partially prefilled whereas in Portugal and South Africa only the electronic tax return is completed upfront, which is similar to Belgium.

Contrary to previous years, the government in Greece and India now also obliges taxpayers to file their personal income tax return electronically. Out of the 8 countries (Austria, Brazil, Greece, India, Italy, Mexico, the Netherlands and USA) where government obliges taxpayers to file their personal income tax return electronically, India and the USA do not prepopulate the tax return form. In exceptional circumstances, a Dutch taxpayer is however allowed to file a tax return on paper; in such a case the tax return form is largely prefilled. Brazil, Italy, Mexico, Poland and the UK clearly made some progress. In previous years, no information was prepopulated. However now, in case of electronic filing, some information is.

The countries that in principle work with partially prepopulated tax return forms, typically limit the upfront completed input to the taxpayer’s personal data, his or her salary information and the details regarding his or her local bank accounts. Compared to previous years, many of the interviewed countries already prepopulate considerable data, whereas Austria, Japan, Malta, Poland, Turkey and the UK stay a bit behind with only few information prepopulated (mostly personal data).

0

1

2

3

4

5

6

7

8

9

Prepopulated data

Details deductible expenses (e.g. charity donations)

Details foreign bank accounts

Details local bank accounts

Data miscellaneous income

Data movable income

Data immovable income (real estate)

Salary data

Personal data

Done

AT CH GB MT PL TR JP MX AU BR FI FR GR SG ZA BE PT NO IT NL SE ESDK

More and more countries (partially) prepopulate the tax return

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8

The total number of data fields or boxes to be (possibly) completed in view of a personal income tax return varies tremendously from country to country. Depending on the type of income a taxpayer receives, big differences can occur in the number of data fields to be completed, also within a country’s own frontiers.

A Belgian tax return contains more than 700 boxes (which are of course not all applicable to each individual taxpayer). Consequently, Belgium belongs to the group of countries who provide taxpayers with a very lengthy tax return form. Over the last 15 years the number of codes has been more than doubled. This could be partly explained by the fact that married or legally cohabitant individuals should file a joint tax return, whereby each partner has his/her own boxes to complete. This is also seen in other countries, where both legally and cohabitant people need to file a joint tax return, such as in Greece and Luxembourg.

France keeps it somewhat shorter with 300 to 400 data fields. The Dutch tax return includes 100 to 200 boxes, while taxpayers in Germany, Ireland and Luxembourg have no less than 500 data fields to look at. Spain and Belgium stand out: their tax return form contains more than 700 boxes!

As in previous years, we can conclude that the average tax return form comprises less than 200 boxes. China, Norway and Portugal still clearly distinguish in their simplicity as these tax return forms only include 25 data fields.

Data fields to complete. China, Norway and Portugal excel

Number of data fields to be completed ?

Done

BELGIUM

(5/34)14,71%

BE, DE, ES, IE, LU

> 500

(10/34)29,41%

101-300

AT, CA, DK, GB, IT, NL, PL, RU, SK, TR

(17/34)50%

< 100

AU, BR, CH, CN, CZ, FI, IN, JP, KR, MT, MX, NO, PT, SE, SG, US, ZA

5,88%(2/34)

301 - 500

FR, GR

Spanish and Belgian tax return forms contain more than 700 boxes

Page 9: Comparative study of the personal income tax …individual income tax returns through an electronic filing system however it requires a specific certificate which is rather expensive

Comparative study of the personal income tax return process In Belgium and other countries 9

In the 34 countries surveyed, tax professionals were asked how burdensome it is for a taxpayer to complete a personal income tax return in case he or she only has to report salary details, a real estate property and mortgage loan details (related to the proper and only dwelling of the taxpayer).

A lot of Belgian taxpayers are of the opinion that completing their annual personal income tax return is the most burdensome task of the year. Last year, in 41% of the countries questioned, people in general considered it to be a difficult task. This year 38,23% of the questioned countries consider it difficult (including countries like France, Germany and Luxembourg). This decrease could be explained by the increase in the prepopulating of tax return forms. The Dutch and Austrian taxpayers even perceive it as a very burdensome task, while the other

21 countries involved (61,76%) rather perceive this to be ‘neutral’ or even ‘not that difficult at all’.

This perception seems to go hand in hand with the average time it takes to duly complete a tax return. On average, it takes 1 to 2 hours to fill out a straightforward tax return. It will be no surprise that when completing a tax return requires more than 2 hours or even up to 5 hours, taxpayers indicated it to be a difficult or burdensome task. Austrian, Russian and South Korean taxpayers spend more than 5 hours completing their tax return form and perceive this process as being difficult or even very difficult.

Completing a tax return remains burdensome

BELGIUM

Done

Average time spent on filling out the tax return (with only salary data, real estate data and mortgage loan details)?

infographic ‘tijd’

IE

Not applicable

AT, KR, RU

> 5 Hours

(3/34)

AU, CH, CZ, DE, IN, JP, MX, NL, US

2,94%

2 - 5 Hours

(1/34)

BE, CN, DK, ES,FR, GB, IT, LU,MT, PL, SG, SK, TR

1 - 2 Hours

(13/34)

BR, CA, GR, FI, NO, PT, SE, ZA

23,53%

< 1 Hour

(8/34) (9/34)

8,82%38,24%

26,47%

South Korean taxpayers spend more than 5 hours completing their tax return form

Burdensome (11/34)

Very burdensome (2/34)

Neutral (12/34)

Not so burdensome (9/34)

0% 10% 20% 30% 40% 50%

Completing the annual tax return: always perceived as a burdensome task ?

5,88%

32,35%

35,29%

26,47%

BELGIUM

Done

AT, NL

BE, CZ, CH, DE, FR, IT, IN, KR, LU, MT, RU

AU, CA, CN, FI, GB, GR, IE, JP, PL, SK, TR, US

BR, DK, ES, MX, NO, PT, SE, SG, ZA

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10

When also looking at the tax return’s level of complexity, it turns out that in almost 68% of the inquired countries, completing a tax return is not seen as very difficult and in principle does not require any tax assistance. As in previous years, in Austria, the Czech Republic, India, Italy, Japan, Russia, Slovakia, South Korea, Switzerland, Malta and Mexico, it is common to ask the tax authorities or a professional consultant for help.

In Belgium it is standard for a self-employed entrepreneur to ask for professional assistance in view of the completion of the tax return, but this however does not apply to the majority of Belgian citizens.

This year 13 out of 34 countries experience the tax return process as difficult to very difficult, but only 8 countries (Austria, the Czech Republic, India, Italy, Malta, Russia, South Korea and Switzerland) state that completing a tax return form in general requires assistance. Additionally, in Japan, Mexico and Slovakia completing a tax return is considered to be a neutral or even not such a difficult task, nevertheless assistance is required in most cases.

We can therefore conclude that this negative perception is not really due to the level of difficulty, but rather to the required time investment (e.g. in Belgium, Germany, France, Luxembourg and the Netherlands, completing a tax return is a (very) burdensome task but in general no assistance is required).

67,65%

32,35%

Level of difficulty

Not so difficult (23/34)

Difficult, assistance is required (11/34)

Done

AT, CH, CZ, IN, IT, JP,KR, MT, MX, RU, SK

AU, BE, BR, CA, CN, DE, DK, ES, FI, FR, GB, GR, IE, LU, NL,NO, PL, PT, SE, SG, TR, US, ZA

BELGIUM

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Comparative study of the personal income tax return process In Belgium and other countries 11

Similar to last edition, almost 62% of the inquired countries apply the principle that every taxpayer is responsible for his/her own tax return, regardless of his/her marital status. This is the case in the Netherlands and the United Kingdom for example. In almost 21% of the investigated countries, the taxpayer can file – if wanted – a joint tax return with his/her partner (spouse or legal cohabitant). As of 2015 this also applies for Portugal. This is however not the case in Belgium: similar to France, Greece, Luxembourg, Malta and Switzerland, married and legally cohabitant taxpayers in principle have to file a joint tax return. Belgium however allows partners to file a separate tax return in exceptional circumstances like for example in case of factual separation.

Are married people aware of each other’s tax affairs

It is not possible to file a joint tax return (21/34)

61,76%

20,59%5,88%

17,65%

Option: 1 joint tax return is possible but separate filing is also allowed (7/34)

Married couples need to file 1 joint tax return (6/34)

0% 10% 20% 30% 40% 50% 60% 70%

Are married couples obliged to submit a joint tax return?

BE, CH, FR, GR, LU, MT

BR, DE, ES, IE, PL, PT, US

AT, AU, CA, CN, CZ, DK, FI, GB, IN, IT, JP, KR, MX, NL, NO, RU, SE, SG, SK, TR, ZA

Done

BELGIUM

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12

In all inquired countries at least one (regional or federal) personal income tax return has to be filed every year. Each American, Canadian, Japanese and South Korean taxpayer has to complete both returns.

In more than 30% of the countries, other kinds of tax returns should be filed depending on the type of income the taxpayer receives (e.g. the Finnish and Japanese tax return for donations or the South Korean tax return in case of realized capital gains). Only France and Spain impose a wealth tax obliging wealthy taxpayers to file an additional tax return. Before this was also the case for India and Mexico. As of April 1, 2015, the wealth tax return is abolished in India. Switzerland on the other hand also taxes wealth although this income is taxed through the cantonal tax return.

Spanish taxpayers still need to complete an additional tax return: everyone needs to fill out a separate form reporting foreign financial assets. In theory, a South Korean taxpayer could possibly be required to file up to five different tax returns during the same fiscal year: a federal and a regional tax return, a retirement tax return, a capital gains tax return and finally in case of death, the heirs need to introduce an inheritance tax return.

Currently Belgian taxpayers only need to complete 1 tax return per year (except in case of death, then an inheritance tax return is required, similar to 44% of the inquired countries).

Multiple tax returns? South Korea stands out

South Korea 5%

5%

In 3/34 countries

In 7 / 34 countries

In 8 / 34 countries

In 15 / 34 countries

0 1 2 3 4 5

Maximum number of tax returns due in 1 year

5

4

3

2

1

BELGIUM

Done

ES, FR, US

BR, CA, DE, FI, IT, JP, TR

BE, CH, DK, GR, IE, LU, NL, PL

AT, AU, CN, CZ, GB, IN, MT, MX, NO, PT, RU, SE, SG, SK, ZA

Page 13: Comparative study of the personal income tax …individual income tax returns through an electronic filing system however it requires a specific certificate which is rather expensive

Comparative study of the personal income tax return process In Belgium and other countries 13

Singapore is the only country where there is no taxation at source, nor a reporting obligation for movable income. In all other countries movable income is taxed at source and/or there is a reporting obligation in the personal and/or a separate income tax return. In more than half of the cases, there is a taxation at source as well as a possible reporting obligation in the personal income tax return. Remarkable is that in Slovakia dividends do not have to be reported. In more than a quarter of the countries (26,47%), there is no taxation at source and all taxable movable income needs to be reported in the personal income tax return. Certain countries like the Czech Republic and South Korea however apply a certain threshold in order to determine whether there is a reporting obligation or not.

If we look at financial assets, we observe a different trend: in more than half of the countries surveyed (56%) there is no reporting obligation for financial assets. In 44% of the questioned countries, financial assets do need to be reported entirely (e.g. Denmark, Norway and Switzerland) or partially (e.g. France, the Netherlands and the USA). In South Africa financial assets only need to be reported in case a certain threshold is exceeded. In case the taxpayer is self-employed or director of a company, financial assets however always need to be reported, even if the threshold is not exceeded.

In all other cases a certain threshold needs to be reached in order to report financial assets.

Taxation of movable income – who taxes at source?

Yes, requirement to report all

Yes, requirement to report some

No, no reporting obligation

0%

20%

40%

60%

80%

100%

Are taxpayers required to report their movable income and/or financial assets ?

2,94%

55,88%

20,59%

35,29%

61,77%

23,53%

BELGIUM

AU, BE, CN, CZ, DE, FR, GB, GR, IE, LU, MT, MX, PL, PT, RU, SE, SG, SK, TR

AU, BR, CA, CN, DK, ES, FI, FR, GB, GR, IE, IN, IT, LU, MX, NO, RU, SE, TR, US, ZA

AT, BE, CH, CZ, JP, KR, MT,NL, PL, PT, SG, SK

AT, AU, CA, IT, KR, NL, US, ZA

BR, CH, DK, ES, FI, IN, JP, NO

DE

BELGIUM

Dividends Interests Capital gains

taxed at

source

CZ/PT/AT/TR/

SE/IT/GR/KR/

GB/ IE/DK/PL/

RU/AU/DE/JP/

CN/ES/BE

BR/CZ/PT/AT/

TR/SE/IT/SK/

GR/KR/GB/IE/

LU/PL/ZA/RU/

AU/IN/DE/JP/

CN/ES/BE

AT/SE/IT/SK/PL/

ZA/RU/DE/JP/

CN/ES

reported in

the personal

income tax

return

BR/CZ/NO/

US/TR/SE/IT/

GR/FR/CH/KR/

GB/IE/MT/DK/

CA/LU/PL/ZA/

FI/RU/AU/IN/

NL/MX/JP/CN/

ES/BE

CZ/AU/BR/NO/

US/TR/SE/IT/

SK/GR/FR/CH/

KR/GB/IE/MT/

DK/CA/LU/PL/

ZA/FI/RU/IN/

NL/DE/MX/JP/

CN/AU/ES/BE

CN/CZ/BR/NO/

PT/US/TR/SE/

IT/SK/GR/FR/

GB/IE/MT/DK/

CA/LU/PL/ZA/

FI/RU/AU/IN/

NL/DE/MX/

JP/ES

reported in a

separate tax

return

MX LU TR/KR/PL/FI/

MX

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14

The government can significantly influence citizens’ behavior by using fiscal stimuli. In a lot of countries a compensation exists for personal expenses and investments via specific tax shelters in the tax return. The personal spending pattern of the taxpayer determines to a large extent the tax decrease one is entitled to.

Australia, China and Slovakia are the only countries (9%) where the taxpayer cannot benefit from a decrease of taxes by taking into account personal deductions in the tax return. However, in almost 56% of the countries such deductions could result in a substantial tax saving. In the second group of countries (35%) personal deductions have only a limited impact. In South Africa such deductions can only be granted to protect against revenue losses or in case of retirement.

Your personal situation is decisive for tax deductions

No, no personal deductions (3/34)

Yes, but only few personal deductions available (12/34)

Yes, many personal deductions possible (19/34)

0% 10% 20% 30% 40% 50% 60% 70%

Can the tax burden be lowered by reporting certain personal tax deductions in the tax return ?

8,82%

35,29%

55,88%

BELGIUM

Done

AU, CN, SK

FI, GB, GR, IE, IN, MX, NO, PL, PT, SG, SE, ZA

AT, BE, BR, CA, CH, CZ, DE, DK, ES, FR, IT, JP, KR, LU, MT, NL, RU, TR, US

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Comparative study of the personal income tax return process In Belgium and other countries 15

Also this year, the vast majority of the inquired countries (76,47%) offers their taxpayers the possibility to report their actual or itemized business expenses in the tax return, resulting in a more favorable final tax liability. Only in Brazil, Canada, Greece, India, Italy, Mexico, the Netherlands and Turkey, the tax authorities do not take into account actual business expenses.

However, in only less than a fourth of the countries surveyed (compared to almost a third in the previous edition) taxpayers opt to report actual business expenses in order to decrease their tax burden. In more than half of the countries the majority of the taxpayers, prefer a lump-sum business deduction.

When the taxpayer has the choice between the lump-sum deduction for professional costs or deducting his itemized business expenses, we can conclude that the lump-sum deduction most often prevails. This also applies to Belgium, except for self-employed entrepreneurs and directors. Generally this group of taxpayers opts to deduct their itemized business expenses (substantially exceeding the lump-sum deduction to which all taxpayers are automatically entitled to).

Self-employed entrepreneurs and directors often benefit from reporting their itemized business expenses, resulting in a substantial decrease of the final tax balance due.

Actual or lump-sum business expense deductions?

23,53%

52,94%

23,53%

Can the taxpayer choose to deduct actual business expenses incurred ?

Yes, many taxpayers report their actual business expenses

Yes, but the majority prefers the lump-sum business expense deduction

No, the tax authorities do not take into account actual business expenses incurred

BELGIUM

Done

AT, AU, CH, DE, DK, FI, IE, KR

BR, CA, GR, IN, IT, NL, MX, TR

BE, CN, CZ, ES, FR, GB, JP, LU, MT, NO, PL, PT, RU, SE, SG, SK, US, ZA

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16

In the majority of the inquired countries the tax authorities are not tolerant towards taxpayers who don’t file their tax returns in due time. Moreover, the majority does not even grant a formal extension at all or only in exceptional and justified circumstances.

In France and the United Kingdom for example, no extension is granted whatsoever and late filing is penalized. In Germany, same as in Belgium, a formal extension can be obtained in case the taxpayer can provide a justification based on exceptional circumstances. Luxembourg remarkably never grants formal extensions, but also doesn’t penalize late filings. Next to that, Malta doesn’t grant extensions to its taxpayers either, but if a taxpayer sends a written request to the tax administration, the fine for late filing might be withdrawn.

Is late filing sanctioned?

B BB

B BNo, and late filing is actually being

sanctioned(16/34)

Yes, in case ofexceptional

circumstances(9/34)

Yes, a formal extension can be

easily obtained(8/34)

No, but late filing is not actually

sanctioned(1/34)

0%

10%

20%

30%

40%

50%

Formal extension possible ?

47%

26%24%

3%

Done

BR, CA, ES, FR, GB, GR, IN, IT, JP, KR, MT, MX, PL, PT, RU, TR

AT, BE, CN, CZ, DE, DK, FI, SE, ZA AU, CH, IE,

NL, NO, SG, SK, US

LU

BELGIUM

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Comparative study of the personal income tax return process In Belgium and other countries 17

Tax refund or tax due?

In the previous edition, 16 out of the 34 countries (47%) ended the tax process with a formal tax assessment. This year it appears that only 15 countries issue a tax bill (or 44%) as Switzerland no longer issues tax bills. This group consists among others of Germany, France, Luxembourg and the Netherlands as well as the Scandinavian countries. In Luxembourg it can theoretically even take up to 5 years until the tax bill is drafted, however in practice, it mostly takes about 1 to 2 years. In Austria taxpayers can opt to pay the tax due upon the moment of filing the tax return. Norwegian taxpayers are also encouraged to pay in advance: the government provides the prepopulated tax return together with an estimation of the taxes to be paid. This amount can already be paid by the taxpayer in order to avoid late payment interest (which would be charged upon receipt of the effective tax bill).

The majority however does not require a formal assessment in order to complete the tax return process; the process is there completed when the tax return has been filed. In these countries the taxpayer often already has to pay the tax due (if any) at the moment of submission of the tax returns (e.g. Canada, Ireland, Japan, the United States and the Czech Republic). In Italy the taxpayer even has to pay the tax due in June, which is before the filing deadline (only in September). In Russia the tax return process also ends when the tax return has been filed, but the tax due only has to be paid after a short (but definite) time. In Poland and Japan the taxpayers need to assess the tax due or refund themselves (which can be based on last year’s situation) and the payment is expected upon submission of the tax return.

No, and late filing is actually being

sanctioned(16/34)

Yes, in case ofexceptional

circumstances(9/34)

Yes, a formal extension can be

easily obtained(8/34)

No, but late filing is not actually

sanctioned(1/34)

0%

10%

20%

30%

40%

50%

Formal extension possible ?

47%

26%24%

3%

Done

BR, CA, ES, FR, GB, GR, IN, IT, JP, KR, MT, MX, PL, PT, RU, TR

AT, BE, CN, CZ, DE, DK, FI, SE, ZA AU, CH, IE,

NL, NO, SG, SK, US

LU

BELGIUM

44,12%

When does the taxpayer need to pay the final tax balance due ?

Upon receipt of the formal tax bill (15/34)

The latest upon filing of the tax return (or within a certain limited period afterwards) (19/34)

55,88%

Done

BR, CA, CH, CN, CZ, ES,GB, IE, IN, IT, JP, KR, MT, MX, PL, RU, SK, TR, US

AT, AU, BE, DE, DK, GR,FI, FR, LU, NL, NO, PT, SE, SG, ZA

BELGIUM

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18

We also wondered if taxpayers have a typical expectation about the final tax balance (tax due or tax refund). For this question, we assumed that the majority of the taxpayers are locally employed as a white-collar worker and own real estate for which a mortgage loan has been concluded. In the first edition of this study, the largest group (32% of the inquired countries) indicated that they had no tax balance to settle (zero tax due or refund). In more than a quarter of the countries (27%) the tax return resulted in a tax due and in another quarter of the countries (also 27%) taxpayers were typically entitled to a tax refund. The previous survey being extended with 12 new countries did not reveal any noticeable or clear trends except that the largest group (almost 30%) indicated expecting to receive a tax refund. This year, the biggest group is still the one expecting to receive a tax refund (almost 25%). However, in the end, most countries indicate that this varies a lot and is therefore difficult to determine (more than 35%).

In one out of five countries inquired, the taxpayer does not have to pay anything or receive something. This is only possible if withholding taxes, deducted by the employer on professional income, are calculated very accurately and take into account the personal situation of the taxpayer. Among others, the Netherlands and the United Kingdom belong to this group. Further investigation taught us that Germany also has a very accurate system of withholding taxes on professional income, however, the German taxpayer, in general, expects a tax refund. This can be explained by the fact that German taxpayers often opt to deduct itemized business expenses in their tax return (often they also report personal deductions on top of the itemized business expenses). If an accurate system of withholding taxes is combined with a tax return process where itemized business expenses and a wide range of deduction possibilities are taken into account, the most logical outcome is a tax refund. In Belgium withholding taxes on professional income are determined based on tax brackets only taking into account the number of dependents, but no other personal information. As a result, most Belgians are entitled to a modest tax refund.

0,00€ to pay or to be refunded

(7/34)

A tax due to be paid

(7/34)

A tax reimbursement

(8/34)

Undecided asit varies a lot

(12/34)

0%

10%

20%

30%

40%

What result does the taxpayer expect upon filing the tax return ?

20,59% 20,59%23,53%

35,29%

Done

CA, CH, DK, IE, MT, NL, NO

FR, GR, IT, IN, MX, RU, TR

AU, BE, BR, CZ, DE,FI, PT, SE

AT, CN, ES, GB, JP, KR, LU, PL, SG, SK, US, ZA

BELGIUM

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Comparative study of the personal income tax return process In Belgium and other countries 19

Free loan for tax authorities or reward for taxpayer?

As reflected in the related charts, the tax authorities always pay interest on top of the tax refund in 41% of the countries surveyed. Remarkably only in 24% of the inquired countries, the taxpayer needs to pay interest to the tax authorities in case of a tax due, even when the taxpayer pays this tax due on time. In 76% of the countries taxpayers need to pay interest in case the tax due is not paid on time. However, only in 26% of the investigated countries the tax authorities pay interest if tax refunds are paid late. Moreover the tax authorities never pay interest on tax refunds in 32% of the countries.

We can conclude that the taxpayer in most countries benefits from interest when too much withholding tax was deducted.

0%

20%

40%

60%

80%

100%

Do tax authorities pay interest to taxpayers?

26,47%

41,18%32,35%

Done

Only interest in

case of late payment

Always interest

No interest

AT, BE, CZ, DE, ES,MT, MX, PL, US

AU, BR, CA, CH, DK, FI, IE, IN, JP, NO, PT, SE, TR, ZA

CN, FR, GB, GR, IT, KR, LU, NL, RU, SG, SK

BELGIUMDone

0%

20%

40%

60%

80%

100%

Do taxpayers need to pay interest to the tax authorities ?

76,47%

23,53%

Nointerest

=0%

Only interest in case

of late payment

Always interest

No interest

AT, AU, BE, BR, CA, CN, CZ, ES, FR, GB, GR, IE, IT, JP, KR, LU, MT, MX, PL, PT, RU, SG, SK, TR, US, ZA

CH, DE, DK, FI, IN, NL, NO, SE

BELGIUM

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Worldwide fiscal transparency is becoming the standard

In these modern times the tax affairs of an individual frequently go beyond borders. Therefore it is not surprising that the tax authorities communicate more often with their foreign colleagues in order to obtain the necessary information to ensure the accurate levy and collection of personal income taxes.

In the meantime almost all countries (94%) have taken the necessary steps to allow information exchange between different countries. In Belgium, the Netherlands and France, among others, such tax information exchange has been common practice for several years. Since recently Spanish tax authorities also exchange information, as well as a.o. their American, English and Austrian colleagues. In Greece the era of international information exchange is still to be entered. In the meantime, Luxembourg and Brazil have also taken the necessary steps. Switzerland* is currently the only country that stays behind.

97% of the inquired countries do exchange information with other countries, or will soon do so

Yes (32/34)

Soon (1/34)

No (1/34) 2,94%

2,94%

94,12%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Do the local tax authorities exchange information with their foreign colleagues ?

GR

CH

AT, AU, BE, BR, CA, CN, CZ, DE, DK, ES, FI, FR, GB, IE, IN, IT, JP, KR, LU, MT, MX, NL, NO, PL, PT, RU, SE, SG, SK, TR, US, ZA

Done

BELGIUM

* As of 2018 bank information will be shared due to the elimination of confidentiality policies.

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Comparative study of the personal income tax return process In Belgium and other countries 21

Random tax audit?

Next to Belgium, India is also part of the few inquired countries (26,5%) using a fixed pattern for selecting taxpayers who will be subjected to an in-depth tax audit. The Indian automated selection process results, for instance, in the investigation of files of self-employed entrepreneurs/directors or individuals with a very high salary. Individuals with a standard salary normally do not have a tax audit on their files. Russia and Germany also use certain criteria which can trigger an audit (e.g. income above € 500.000 or foreign income that needs to be exempted on the basis of international tax treaties).

This year it was also questioned whether a high income would trigger an audit. Almost half of the countries indicated that this is the case.

In accordance with the previous studies, the tax authorities randomly decide which files will be subjected to an in-depth tax audit in almost 68% of the countries investigated. Some of these countries however use a certain methodology by focusing on particular points of interest. France for example will compare last year’s tax return with the current tax return. In case large differences are identified, the file is more likely to be audited.

If we look at factors which are likely to result in an audit or additional investigation by the various local tax authorities, we see that one of the main reasons is a big tax refund, followed by claiming excessive deductions and the request to exempt foreign income.

Finally, the study results show that Norway, Ireland, Switzerland, Sweden and the United States do not conduct official tax audits whatsoever. The Austrian and the Singaporean tax authorities do audit companies but never individual income tax files and the Swiss tax authorities thoroughly investigate all tax returns before issuing a tax assessment, eliminating as such the necessity to conduct in-depth investigation of a certain file at a later stage.

At random (23/34)

Based on a fixed pattern (9/34)

Not applicable (2/34)

0% 10% 20% 30% 40% 50% 60% 70% 80%

Tax audit: are files selected at random or based on a fixed pattern ?

67,65%

5,88%

BE, CH, DE, IN, IT, NL, PL, RU, SE

AU, BR, CA, CN, CZ, DK, ES, FI, FR, GB, GR, IE, JP, KR, MT, MX, NO, PT, SG, SK, TR, US, ZA

AT, LU

Done

26,47%

BELGIUM

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General conclusion

In most countries a tax return can be filed both electronically and on paper. Most of the surveyed countries prepopulate more and more the tax return boxes every year, especially in the electronic tax return. The tax authorities prepopulate the returns based on information provided by third parties (employers, financial institutions, as well as on the basis of information exchange with foreign colleagues with regard to movable income/bank data). This progression can only be cheered, certainly since the completion of the tax return is considered complex in half of the investigated countries (both the number of boxes to be completed, as the average time spent to fill out the tax return). The large majority of the countries which have the most prepopulated boxes in the tax return form,

consider the completion of the tax return as not so difficult. Even more, in almost all countries where the tax return is prepopulated, almost no assistance with the completion of the return is necessary.

Dividend and interest income are taxed at source in more than half of the investigated countries. Even more, they also have to be reported in the tax return. Only in few exceptional cases, e.g. in Mexico and Luxembourg, dividend and interest are to be reported in a separate tax return. Capital gains on the other hand are hardly taxed at source, but are to be reported in the personal income return in almost all countries surveyed. In only five countries, a separate tax return form is to be filed in this respect.

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Page 24: Comparative study of the personal income tax …individual income tax returns through an electronic filing system however it requires a specific certificate which is rather expensive

Patrick DerthooPartner+ 32 9 393 75 [email protected]

Sophie VerhoevenManager+ 32 9 393 74 [email protected]

ContactFor more information please contact:

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